The DLC Company produces DVD players. This years expected production is 20,000 units. Currently DLC makes disks for its DVD players. DLC management accountant reports the following for making 20,000 disks for the DVD. Cost per unit Cost for 20,000 units Direct materials $4.00 $80,000 Direct manufacturing labour 2.00 40,000 Variable manufacturing overhead (power and utilities) 1.50 30,000 Inspection, setup materials handling 4,000 Allocated fixed costs of plant administration, taxes and insurance 60,000 Machine rent 6,000 Total $220,000 DLC has received an offer from an outside vendor to supply any number of disks DLC required at $8.20 per disk. The following additional information is available: \

a) Inspection, setup, and material-handling costs vary with the number of batches in which the disks are produced. DLC produces disks in batch sizes of 1,000 units. DLC estimates that it will produce the 20,000 units in 20 batches.

b) DLC rents the machine used to make the chains. If DLC buys all of its disks from the outside vendor, it does not need to pay rent on this machine. Required:

i) Assume that if DLC purchase the disks from the outside supplier, the facility where the disks are currently made will be idle. On the basis of financial considerations alone, should DLC accept the outside suppliers offer at the anticipated production (and sales) volume of 20,000 units? Show your calculations.

ii) For this question, assume that the disks are purchased outside; the facilities where the disks are currently made will be used to upgrade the DVD players by adding a recording option. As a consequence, the selling price of the DVD will be raised by $20. The variable cost per unit of the upgrade would be $18 and the additional tooling costs of $32,000 would be incurred. On the basis of financial considerations alone, should DLC make or buy the disks, assuming that 20,000 units produced (and sold)? Show your calculations.

iii) The sales manager of DLC is concern that the estimate of 20,000 units may be high and believes that only 12,400 units will be sold. Production will be cut back, freeing up workspace. This space can be used to add the recording option whether DLC goes outside for the disk or makes them in house. At this lower output; DLC will produce the disks in sixteen batches of 775 each. On the basis of financial considerations alone, should DLC purchase the disks from the outside vendor?